Every part of our society depends on energy. Yet we don't have a plan
Cutting household costs is vital, but that can only be part of a much wider approach to how we keep the nation going

Andrew Simms
The Observer, Sunday 21 October 2012

Why is Britain not better insulated against volatile energy prices? It's an issue much bigger than how we heat our homes. More than a decade ago, rising fuel prices triggered protests by truck drivers that revealed the fragile nature of the nation's infrastructure. The government and the protesters seemed equally stunned at the swiftness with which a blockade of a handful of fuel depots could interrupt so many vital supply lines and services.

In an atmosphere of near panic, Whitehall met supermarket bosses who were warning that their shops had just three days' worth of food on the shelves. In 2008, there was a triple whammy of the banking crisis, rocketing oil costs and food prices driven both by the price of oil and crop failures due to extreme weather. It can't be exaggerated how much the fate of transport, farming, households and industry is sewn into the fabric of the energy system. It carries a kind of DNA for our livelihoods. Everything relies on energy and changes in the industry have impacts that work through the wider economy in complex and interwoven ways. Now the fabric of the system has worn thin and could be ripped apart by the economic and environmental pressures pulling on it.

Faced with this picture, end-of-pipe policy reforms, such as David Cameron's voter-friendly but ill-prepared pledge to force the big utilities to offer customers their cheapest deal, are entirely inadequate. They are no substitute for grabbing the overdue economic opportunity of investing in a modern, resilient, low-carbon energy system.

The big picture is important. Debate could easily get bogged down in technology versus technology point scoring. And it easy to pick off those who overclaim for certain technologies That would simply continue the locked-in mess we already have. But if we ask questions such as how many jobs can be created, how much carbon can you cut and how much energy do you get back for the amount of energy invested, a mix of renewable technologies will be first in queue

Since 2008, two different governments have had the chance to create countless jobs, build a better energy system, ensure Britain has warmer homes in winter and tackle climate change by investing at scale in a "green new deal".

It is still the case that a tiny fraction of the public resources used to underpin the banking system could revolutionise energy generation and radically reduce consumption and dependence through energy efficiency measures in the nation's building stock. Why not, for example, inject productive capital in a targeted way into the real economy through green bonds via the Green Investment Bank?

Last week, the IMF noted that the negative, "reverse leverage" of spending cuts was worse than it thought. To no one's surprise, George Osborne's faith in the exotic economic notion of "expansionary fiscal contraction" didn't work. At the same time, in response to voices from business, the government acknowledges that some kind of industrial policy is now necessary to get the nation back to work and energy is key to this.

Yet, in spite of high prices and climate change targets, there is still a sense in which energy policy is stuck in the mindset that characterised transport policy back in the 1970s and 1980s – one of predict and provide, rather than simply pushing the utilities to offer lower prices.

It is oddly appropriate that the banking sector's former chief lobbyist, Angela Knight, who represented the British Bankers' Association, is now the voice of the big energy companies at Energy UK. For complacency on energy policy today ranks with the overconfident thinking in 2006 on banking and finance. While all energy issues matter, it is still the case that the greatest overall threat comes from our dependence on oil – high and volatile in price, environmentally destabilising in use and explosive in terms of geopolitics.

George Osborne gives the oil companies tax breaks and self-serving reports from within the industry tell us that oil is entering a new golden age, exploiting its newer "unconventional" sources such as Alaskan shale oil. Such a case was made recently in a report funded by the oil company BP, written by a former oil company executive Leonardo Maugeri and published by the Harvard Kennedy School. Nothing could be more wrong and ranks in terms of complacency with Gordon Brown's 2006 Mansion House speech boast on the success of the UK's "light touch" financial regulation.

A recent and methodologically more complete analysis than Maugeri's by the IMF on the future of oil notes that diminishing increases in production can only be bought at a likely doubling of the price of oil over the next decade. This is likely to usher in the phenomenon of what might be called economic peak oil – "a pain barrier" beyond which the level of oil prices has a dramatic effect. The IMF calls it a "shock" that will have "large and persistent" macro-economic effects.

Then there is the climate question. The UK and the EU are committed to a course of action that will prevent temperatures rising by more than 2°C. And the latest science tells us that to meet that we can only afford to burn around one-fifth of the available, and economically recoverable, fossil fuel reserves between today and 2050.

There must be a strong sense of deja-vu in households bewildered by how their energy costs float up against a backdrop of rising international fuel prices but don't seem to float down when they reduce. Several factors explain why. The market is over-concentrated, with too few, too large self-interested energy companies that regulators either cannot or won't regulate in the public interest. Second, it is precisely because Britain has failed aggressively to diversify its energy supply, so that it remains highly vulnerable to changes in the prices of fossil fuels. Equally, the economic opportunity to invest at scale in energy efficiency and the insulation of Britain's old, draughty building stock would more than pay for itself bringing jobs, lower fuel bills, warmer homes in winter and boost the overall economy.

As it is, we suffer an uncompetitive market, with too little diversity of supply and a clean, renewables sector crying out for the investment conditions to expand, which is further hampered by a government too hidebound by economic doctrine to see the one policy – a green new deal – that could solve all these problems. So here is that rare political thing – a win-win situation. It's the sort of thing that great legacies are made of. With so many other problems around, wouldn't any politician want to grab it with both hands?